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Death Spiral Financings
Psychedelics company Silo Wellness was about to go bust, but just over a month ago Alpha Blue Ocean committed CAD ~$6m to keep the company going.
Alpha Blue Ocean explains that it’s a provider of “alternative financing solutions,” having executed over 80 transactions with financial engagements of more than EUR 1.5bn since inception.
Phew, right? Well, not so fast.
The terms of the financing commitment are not for the faint-hearted. The terms resemble what are sometimes dubbed ‘death spiral’ financings, which allow the company to raise money at the expense of other shareholders.
No surprise, then, that the stock price is down 95% since last year.
Distressed financings like these were common in the cannabis space as companies ran out of cash. The emergence of deals like these in the psychedelics space should serve as a warning to investors and other stakeholders in companies with short cash runways, especially companies with tiny market caps like Silo.
What is Silo Wellness up to, anyway? It claims to be working across a number of business units: from a psilocybin nasal spray to functional mushrooms and retreats.
The company recently terminated a couple of deals, too. It had hoped to licence its psilocybin nasal spray in Columbia and Brazil via a deal with Jungle Med Inc., but the LOI was mutually cancelled.
A “strategic equity investment” of $495,000 that was announced in February was also terminated. It would have seen Orthogonal Thinker’s David Nikzad and Jason Hobson appointed as co-CEO and COO of Silo, respectively.
It seemed there were at least some synergies between Orthogonal and Silo: both are throwing buzzwords at the wall (or, cash at ‘disruptive’ ideas) and seeing what sticks: from ‘Happy Sexy’ weight-loss supplements to metaverse ads.
One example: psychedelics X the metaverse. On February 11th, Silo Wellness’ functional mushroom brand Marley One sponsored a metaverse concert headlined by Outkast’s Big Boi. Orthogonal Thinker, meanwhile, purchased a 12×12 patch of land in the Sandbox metaverse in a transaction valued at $2.2m at the time (it looks like they bought the top: the value of the ‘land’ has dropped precipitously since then).
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